Fair share Allocation

Advertisement

It is a simplified inventory management planning method that provides each distribution facility with an equitable or ‘Fair share’ of available inventory from a common source such as a plant warehouse.

 

Using fair share allocation rules, the inventory planner determines the amount of inventory that can be allocated to each district center from the available inventory at the plant warehouse. For this example assume that it is desirable to retain 100 units at the plant warehouse, hence 500 units are available for allocation.

 

Formula

DS = common days supply for distribution center inventory.

Aj = inventory units to be allocated from plant warehouse.

Ij = inventory in units for distribution center ‘j’

Dj = daily demand for distribution center j.

n =   number of distribution centers.

 

In this example, DS = 500 + (50+100+75)

10 + 50 +15

= 500 + 225

75

= 9.67 days

Hence the fair share allocation indicates that each distribution center should be brought up to 9.67 days of stock. The amount to be allocated to each distribution center is determined by:

Aj = (DS – Ij )   x Dj

Dj

 

Aj = amount allocated to distribution center ‘j’.

Ds = days’ supply that each distribution center is brought up to Ij and Dj are as above.

The amount allocated to distribution center 1 in this case:

A1 = (9.67 – 50/10) x 10  =  (4.67) x 10 = 46.7 ~ 47 units.

 

However fair share allocation does not consider site-specific factors such as differences in performance cycle time, EOQ, safety stock requirements.

 

SKU (Stock keeping unit – it is a specific item purchased by the customer including colour and size uniqueness.)

Advertisement
The following two tabs change content below.
We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to [email protected]
61 Comments

Leave a reply

BMS.co.in is aimed at revolutionising Bachelors in Management Studies education, also known as BMS for students appearing for BMS exams across all states of India. We provide free study material, 100s of tutorials with worked examples, past papers, tips, tricks for BMS exams, we are creating a digital learning library.

Disclaimer: We are not affiliated with any university or government body in anyway.

©2020 BMS - Bachelor of Management Studies Community 

A Management Paradise Venture

Ask Us On WhatsApp
or

Log in with your credentials

or    

Forgot your details?

or

Create Account